MPSERS costs will soon be added to unrestricted net assets

The amount of money recorded as unrestricted net assets, recently retooled as "total net position" in the accounting world, might look a little different come 2014.

Following the 2014 fiscal year, Central Michigan University will begin to allocate at least $72 million out of the $279.6 million currently sitting in reserves to cover unfunded liabilities for pension costs for current employees under the Michigan Public School Employees Retirement System.

In June, the Governmental Accounting Standards Board, used by state and local governments as the source of generally-accepted accounting principles, approved two new pension standards that require state and local schools to add an additional liability to their financial statements. GASB statements No. 67 and 68 change existing guidance and reporting of government bodies that provide their employees with pension benefits.

CMU has been paying into MPSERS since 1996 and is legally obligated to pay the $72 million, classified as an unfunded liability, by 2036. For the 2012-13 fiscal year, CMU will pay a pre-funded pension rate of 3.21 percent while accruing an unfunded liability of 13.41 percent. Those costs will increase for the 2013-14 fiscal year when CMU is due to pay 3 percent of normal pension costs, while accruing a 16.61 percent liability.

“It’s amazing how folks always talk about how much we get from the state," said University President George Ross, pointing out the $11 million CMU pays into MPSERS each year. "The reality is we write a check right back for MPSERS.”

On top of the $72 million, Ross said Plante & Moran, CMU's auditing company, estimates the university may have to pay an additional $110 million as an unfunded liability for health care costs. He hopes to know as soon as December.

Ross said the university is unsure of what that means for future projects, including the proposed biosciences building, which is slated to to get $30 million in state funding and at least $66 million of funding from the university, some of which would come from the unrestricted net assets.

“The challenge is, when you dissect unrestricted net assets, significant amounts of that is designated," Ross said, pointing to more than $30 million in unrestricted net assets functioning as an endowment for grants and scholarships.

MPSERS, comprised of a pension plan and health care benefits for public school employees, was established and fully funded by the state of Michigan in 1945. Including CMU, seven state universities — Michigan Technological University, Northern Michigan University, Lake Superior State University, Ferris State University, Western Michigan University and Eastern Michigan University are the others — were required to participate by law.

“This is across the country. In Michigan, almost every unit of government has this issue," said David Burdette, Vice President of Finance and Administrative Services.

In 1974, the state shifted 9 percent of assessment pension costs to the university. A year later, in 1975, healthcare -- along with dental and vision -- was also added to the program. By 1994, the state shifted the full cost of MPSERS, including the state's unfunded liabilities, to the universities enrolled.

And while a law change in 1996 prevented any new university employees from earning MPSERS benefits, CMU still has has 414 active employees under the MPSERS umbrella, with another 896 receiving retiree benefits. An analysis within the last year by Plante & Moran shows CMU owing an estimated $72 million of about $333 million in pension costs from the seven public universities enrolled in MPSERS.

Mary Hill, assistant controller of Financial Services, works on a state-wide task force with the other universities in the MPSERS program.

“As different legislators want to do things in Lansing, that kind of draws the task force back together," she said.